Given the historical cost of product Z is $40, the selling price of product Z is $50, costs to sell product Z are $6, the replacement cost for product Z is $41, and the normal profit margin is 40% of sales price, what is the market value that should be used in the lower-of-cost-or-market comparison?
A) $40.
B) $42.
C) $41.
D) $22.

Question

Quizplus · Accepted Answer

To determine the market value for the lower-of-cost-or-market (LCM) comparison, we need to compare the original cost ($40) with the replacement cost ($41). The replacement cost is higher than the historical cost, so the market value should be $41.

Next, we need to compare the market value ($41) with the selling price ($50). Since the normal profit margin is 40% of the selling price, we can calculate the normal profit margin as 0.4 x $50 = $20. Therefore, the maximum allowable market value would be $50 - $20 = $30.

Since the market value ($41) is higher than the maximum allowable market value ($30), we need to use the lower value, which is $30. However, we also need to subtract the costs to sell ($6) from this value, giving us a final market value of $24.

Therefore, the answer is C) $41, since it is the replacement cost used to determine the market value in the LCM comparison.

Given the Historical Cost of Product Z Is $40, the Selling